Even as the government did not offer any relief to tax payers by way of tweaking the tax rates, Finance Minister Nirmala Sitharaman offered some relief to homebuyers in the affordable housing segment by allowing an additional deduction of Rs 1.5 lakh for interest paid on home loans with respect to affordable houses valued at up to Rs 45 lakh.
While the move will benefit homebuyers and help them save taxes of up to Rs 50,000 (for those falling in highest tax slab of 30 per cent), industry experts say that the move will also provide a fillip to the troubled real estate sector as it will draw homebuyers into the market and create demand for the sector.
“For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakh in respect of self-occupied property. In order to provide a further impetus, I propose to allow an additional deduction of up to Rs 1,50,000 for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to Rs 45 lakh,” said Sitharaman.
She further added that while a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh, “This will translate into a benefit of around Rs 7 lakh to the middle-class homebuyers over their loan period of 15 years.”
Experts, however, say that it may not be possible for homebuyers in the affordable housing category to fully utilise the benefits of the additional deduction of Rs 1.5 lakh made available by the Finance Minister in the budget.
A homebuyer buying a home costing Rs 45 lakh and taking a loan of 80 per cent of the value of the house will take a loan of up to Rs 36 lakh. As per rough estimates, at an interest rate of 9 per cent, his first year interest outgo will be around Rs 3.25 lakh, so he will be able to claim benefit on that amount. In the following years, that will go down further.
However, if a home buyer takes a loan of only Rs 30 lakh, his interest outgo for the first year will be around Rs 2.7 lakh and he can claim benefit only on that amount.
Parth Mehta, Managing Director, Paradigm Realty, said, “Deduction of interest hiked from Rs 2 lakh to Rs. 3.5 lakh for loans taken in FY’20 in case of affordable housing shall help the developers in extended suburbs of Mumbai Metropolitan Region (MMR) region but definition of it being still capped at Rs 45 lakh and not revised upwards from MMR point of view is disappointing.”
However, Ramesh Nair, CEO & Country Head, JLL India, said that since majority of homebuyers fall in the lower and mid-income segments, “this tax benefit will boost demand substantially”. He added that this will significantly benefit first-time homebuyers who will enjoy the benefits of interest subvention under the CLSS scheme and the announced tax benefits.”
The government has further said that to claim such benefits, the loan has to be sanctioned by a financial institution between April 1, 2019 and March 31, 2020. Also, the assessee should not own any residential house property on the date of sanction of loan.
Further, the deduction will be available only in respect of a housing project if a residential unit in the housing project has a carpet area not exceeding 60 square meter in metropolitan cities or 90 square metre in cities or towns other than metropolitan cities of Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region).
While benefits have been offered for affordable housing segment the government has proposed to increase the scope of TDS payment on purchase of immovable property. The budget said that TDS of 1 per cent will be payable on “consideration for immovable property” including charges of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature.